Money Matters

I am of the view that market is very high right now and I am waiting for a correction to start my SIPs. Is this the right approach?

Mohammad Rafiq via e-mail

The whole idea of SIPs is that you should invest your money according to a plan. If you are waiting for a correction to start an SIP, the whole purpose of a SIP is defeated. You need to understand that it’s nearly impossible to time the market. Many investors miss great opportunities waiting for a correction. A disciplined investment approach is more important than trying to time the market.

With SIPs you invest both during ups and downs and hence you don’t have to worry about timing the market right. You automatically buy more units when the market is down and fewer units when it is rising and this as such helps you average your cost over time.

I am expecting some lump sum amount very soon. Which is the best liquid fund to invest in?

Syed Mudasir via e-mail

Liquid funds more or less offer similar returns. You can choose any of the two largest liquid funds, they will give you a little more what a normal savings bank account would offer. Nowadays liquid funds allow you to redeem your money anytime through an app or online and it can more or less be used as a bank account.

My suggestion would be that if you are unlikely to utilise this money for a long period, you should consider equity funds as they offer considerable returns with ease of liquidity and diversification.

What are the average returns expected from an equity fund over a period of 5 years?

Rizwan Ahmad, Baramulla

If you do some research and happen to look at three, five or even ten year returns of equity mutual funds, many of them have delivered over 15-18 per cent annual returns consistently. If you want a similar annual return on a continuous basis, there is no such specific fund because equity fund returns come in an irregular manner. In some years, equity funds generate 30-35 per cent and in some years, they would give a single digit return. So returns would come in a fairly inconsistent manner, however, spending time in the market is the way to go.

I have sold a piece of land recently which was jointly held with my siblings and my share is Rs 60 lacs (approx). I want to buy a flat in Delhi/NCR for which I intend to take a loan from the bank. I want to know whether to use the Rs 60lacs amount for the flat or whether to invest it and get the flat financed from the bank?

Ishfaq Ahmad, Noida

This is primarily a matter of personal choice and preference. However, you need to consider a few factors before going ahead with your decision. Firstly, you should buy a house/flat because you want to live in it. Don’t buy it as an investment. Secondly, ensure your EMI is less than one-third of your monthly income. If both factors fall in line, go ahead and get a home loan.

My point specifically here is that you get more returns from equity mutual fund investments than the interest you pay on your home loan. Suggest you invest with a time horizon of more than 5 years & invest in piece-meals and not as lump sum. Further, need to understand that the above strategy is applicable to home loans only and not to other modes of credit because they charge higher interest rates.

I have heard that EPFO has started investing huge chunks of money in equities off-late. Is the increase in EPFO’s equity exposure a reason to panic?

Mushtaq Ahmad, Habba kadal, Srinagar

There is no reason to panic about this move. On the contrary, it should help EPFO generate better returns over the long run. The return on EPFO’s investments was around 15 per cent last year as per reliable sources. Such returns clubbed with the effect of compounding over a period of time, will play a significant role in growing your retirement corpus. The risk that critics talk about is based on the casual impression of volatility in equity investments. It is correct that equities tend to be volatile in short-term. But the risk of losing money reduces tremendously over long term, as the return potential increases.